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China Issues Plan to Overhaul Troubled Shipbuilding Industry

China’s State Council issued a three-year plan to upgrade and restructure its troubled shipbuilding industry through 2015, a further move to stabilize economic growth through reform, the official Xinhua News Agency reported.
The sector faces “unprecedented, severe challenges” as a lack of new orders, due to weakness in the global shipping market, has exacerbated overcapacity in the industry, Xinhua said today, citing a government document. At the same time, companies should be confident as “the potential in the domestic market remains relatively large.”
China, the world’s biggest shipbuilding nation, may see a third of its more than 1,600 yards shut down in about five years, according to Wang Jinlian, head of the industry association. The sector is among those including iron and steel, cement, electrolytic aluminum and flat glass that must accelerate the phasing out of overcapacity, according to a July 24 statement from the Ministry of Industry and Information Technology.
China Rongsheng Heavy Industries Group Holdings Ltd. (1101), the largest shipbuilder outside state control by order book, warned last month it made a net loss in the first half and said it was seeking financial support from the government and shareholders after a plunge in orders strained cash flow. The company said July 31 it agreed to issue convertible bonds to raise a net HK$1.38 billion ($178 million) for working capital and to support the development of its offshore engineering business.
Control Capacity
The main focus of the State Council plan will be on accelerating innovation, strictly controlling new capacity, promoting high-end products and stabilizing the industry’s international market share with greater funding support, Xinhua said. Local authorities and agencies should formulate supporting policies and ensure the timely completion of targets, Xinhua said, without providing any specific goals or a timetable.
The new program is in line with a 2009 blueprint that focused on efforts to revitalize the shipbuilding industry for the three years through 2011, according to Xinhua. Under the government’s current five-year economic plan that runs through 2015, targets for the sector include upgrading shipbuilding standards and developing higher value-added products.
The combined profits of 80 major shipbuilders monitored by the Chinese Association of the National Shipbuilding Industry fell 54 percent in the first half of the year to 3.58 billion yuan ($584 million), the China Daily reported on July 24.
About 464 shipyards in China won 18.7 million deadweight tons of orders worth $14.3 billion last year, the lowest since 2004, according to Clarkson Plc (CKN), the world’s biggest shipbroker. That compares with contracts for 14.6 million tons worth $29.6 billion received by 88 yards in South Korea, the world’s second-biggest shipbuilding nation.

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